Uninhabitable property loan, so it can be passed thru parent/child tax exclusion

Hi Evan- I have a very interesting situation I am trying to solve. I came across your “https://fitsmallbusiness.com/rehab-loans/” page tonight and am wondering if I might be on to something here.

My mom has the opportunity to have a property in her family trust past to her through a “parent-child tax exclusion law”. What she and my aunt (as the trustees) will need to do first is get a loan on the property for 2/3 of the determined value by the family (this value is much lower than the value of the property if it were fixed up). The loan money will then get distributed to the other beneficiaries of the trust and my mom will get the property and the mortgage on the property. Once this transaction is complete, my mom will pay off the loan.

One reason why this is tricky and I am looking for a unique lender is because the property is uninhabitable. Another reason is that I do not plan on doing any rehab on the house until after the transaction is complete.

I am trying to find someone who is willing to loan money on the property for 3 months and their security is that the property has a market value of at least $400k and the loan will need to be for $200 to $245k.

Thanks for reaching out, and thanks for reading! I’ll say off the bat that I’m not too familiar with the child tax exclusion law. However, I am very familiar with loans that finance distressed properties.

It sounds like what you need is a hard money loan. These loans are short, between 1 – 3 years, and typically don’t have any early prepayment penalties. They lend based on a property’s current value or expected future value after repairs. It sounds like regardless of what’s used, your property is valuable enough to get the loan size you need.

For example, many hard money lenders offer loans up to 90% of a property’s LTV. At $400k, you would only need an LTV around 50% to get the $200k you need. I’m not a lender myself but I’d imagine you’ll find one who would be happy to issue a hard money loan on the property, even if it’s uninhabitable. Remember that monthly payments are interest-only and the $400k asset itself is used as collateral, so there’s not much risk for the lender.

I would reach out to one of the partners in the guide and explain your situation. However, I’m not sure if there are any provisions with the parent-child tax exclusion law, and I always recommend consulting with a legal or tax professional just in case.

Overall, I think a hard money loan is your best bet. Let me know how it goes!

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